2024 (7) TMI 1438 - HC - Income Tax

Royalty payable - rate of royalty - ITAT justification in adjudicating that royalty was payable by Dabur International Ltd. UAE at a reduced rate of 0.75 percent on FOB Value to the respondent as against the royalty chargeable at the rate of 4 percent on FOB sale value as worked out by the TPO/AO? - HELD THAT - Although the assessment on the regular basis was proposed on a total income of approximately INR 52,00,00,000/- the book profits were ultimately worked out in terms of Section 115JB and the income subjected to tax was quantified at INR 211,42,99,386/-. - Thus, we find that there would be no justification to entertain these appeals on the aforesaid proposed questions of law. Valuation of shares - ITAT directing for the valuation of shares AO be required to adopt the figure of projected growth as taken by the respondent i.e. average of growth figure at 19% instead of 25% as previously directed by the CIT(A) 89% adopted by the AO - As correctly held by ITAT in the present case, the ld. CIT(A) although directed the AO to adopt average of growth figure available for three years which came to 25% but ignored the growth rate based on actual figures for the future years. In the instant case, it is not pointed out as to how and in what manner the average growth figure taken by the assessee at 19% for succeeding years, on the basis of valuation report of an independent valuer was wrong. Therefore, we are of the view that the Ld. CIT(A) was not justified in adopting the figure of average growth at 25% instead of 19% adopted by the assessee. Accordingly, we modify the order of the ld. CIT(A) to this extent that the AO for the valuation of shares of M/s Dabur Overseas Ltd., shall adopt the figure of projected growth by taking average of growth figure at 19% instead of 25% directed by the ld. CIT(A). Accordingly, this issue is decided in favour of the assessee and against the department. Deduction u/s 80-IB and 80-IC - receipts of sale of scrap - whether the said claim was legally justified and correct? - Revenue could not question or doubt the legal position as enunciated in CIT v. Sadhu Forging Ltd. 2011 (6) TMI 9 - DELHI HIGH COURT in view the activities of the assessee in giving heat treatment for which it had earned labour charges and job works charges, it can thus be said that the appellant had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking. These receipts cannot be said to be independent income of the manufacturing activities of the undertakings of the assessee and thus could not be excluded from the profits and gains derived from the industrial undertaking for the purpose of computing deduction under section 80-IB. These were gains derived from industrial undertakings and so entitled for the purpose of computing deduction under section 80-IB. There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from the industrial undertaking for the purpose of computing deduction u/s 80-IB. here is no infirmity in the order of the ITAT. No substantial question of law arises

Summary

Issues:
1. Rate of royalty payment by Dabur Nepal Pvt. Ltd. and Dabur International Ltd. UAE to the respondent.
2. Deletion of upward adjustment in sale of equity shares of M/s Dabur Nepal Pvt. Ltd.
3. Valuation of shares of M/s Dabur Overseas Ltd.
4. Allowance of deductions under Sections 80-IB and 80-IC for various incomes.

Analysis:
1. The Commissioner challenged the ITAT's order on royalty payments by Dabur Nepal Pvt. Ltd. and Dabur International Ltd. UAE. The ITAT reduced the royalty rates, questioning the justification for the reduction. The total income assessed was INR 52,00,00,000, with book profits of INR 211,42,99,386 under Section 115JB of the Income Tax Act, 1961. The High Court found no basis to entertain the appeal on this issue.

2. The deletion of the upward adjustment of Rs. 11.64 crores in the sale of equity shares of M/s Dabur Nepal Pvt. Ltd. was contested. The ITAT's findings supported the deletion based on detailed valuation methods and growth projections. The High Court noted the conclusive findings of fact by the ITAT and found no substantial issue to warrant interference.

3. The valuation of shares of M/s Dabur Overseas Ltd. was disputed, focusing on growth projections and the valuation methodology. The ITAT criticized the TPO's approach and directed the AO to adopt a growth figure of 19% instead of 25%. The High Court upheld the ITAT's decision, emphasizing the reasonableness of the adopted growth rate and the independent valuation report.

4. Concerning deductions under Sections 80-IB and 80-IC, the legal position was clarified citing precedents. The activities of the assessee in manufacturing steel forgings and providing heat treatment were deemed eligible for deductions. The High Court concurred with the ITAT's decision, dismissing the appeals as no substantial question of law arose based on the established legal principles and factual findings.